Indemnity Agreement Not Inferred in Oilfield Contract

Indemnity agreements will not be easily inferred in the absence of a written contract, the First Circuit Court of Appeal recently reminded.

In Walton v. Guidry, 2017-0784 (La. App. 1 Cir. 1/4/18), responsibility for payment of benefits under the Longshore and Harbor Workers’ Compensation Act hinged on whether an indemnification agreement existed between the nominal employer and the borrowing employer. Original USA provided its employees as temporary labor to A-Port, LLC to serve as riggers at A-Port’s shorebased facility in Grand Isle, Louisiana. An Original USA employee, Willie Walton, was injured while working at the A-Port facility. He sued A-Port and two A-Port employees for his injuries. A-Port and its two employees brought a summary judgment alleging that A-Port was immune from tort liability because it was Walton’s borrowing employer. The trial court granted the summary judgment and the court of appeal affirmed.

Thereafter, Original USA and its insurer, American Interstate Insurance Company (“AIIC”), intervened in the lawsuit alleging that A-Port and its insurer, Louisiana Workers’ Compensation Corporation (“LWCC”) were contractually required to reimburse Original USA and AIIC for the Longshore benefits they paid to Mr. Walton and to assume responsibility for all future compensation payments to Mr. Walton.

The court began its analysis by noting that the U.S. Fifth Circuit, in Total Marine Services, Inc. v. Director, OWCP, 87 F.3d 774 (5th Cir. 1996), had determined that a borrowing employer is required to pay compensation benefits to an injured worker, and to reimburse the nominal employer for any benefits paid, unless a valid and enforceable indemnification agreement requires otherwise. The contract between Original USA and A-Port lacked a clear indemnification provision, so the issue in the case was whether the “pay rate information” in the agreement between the parties required indemnification, or whether the alternate employer endorsement in AIIC’s policy made A-Port an additional insured.

The court relied upon standard principles in interpreting these contractual provisions. The court noted that “[a]lthough a contract is worded in general terms, it must be interpreted to cover only those things it appears the parties intended to include. La. Civ. Code art. 2051. When the parties make no provision for a particular situation, it must be assumed that they intended to bind themselves not only to the express provisions of the contract, but also to whatever the law, equity, or usage regards as implied in a contract of that kind or necessary for the contract to achieve its purpose. La. Civ. Code art. 2054.”

The pay rate information provided a $23 per hour wage for riggers and included the statement that this rate “”is a per hour/per man composite rate that includes Original USA General Labor, LLC providing the required General Liability and Workers Compensation Insurance for our personnel.” The court observed that this provision made no reference to indemnification and, therefore, failed to establish an express obligation by Original USA to indemnify A-Port.

AIIC’s policy contained an endorsement that required AIIC to “reimburse the alternate employer for the benefits required by the workers compensation law if we are not permitted to pay the benefits directly to the persons entitled to them.” However, this endorsement only applied to alternate employers listed on a schedule, and the schedule covered “all alternate employers that are required by a written contract.” Because the court had found that neither the pay rate information nor any other written agreement between the parties required alternate employer coverage, it determined that this endorsement did not provide coverage to LWCC. As a result, the court found that LWCC had to reimburse AIIC for the benefits it paid to Mr. Walton and to assume responsibility for the future payment of workers’ compensation benefits.

This case represents a reasonable interpretation of agreements supporting offshore activities and provides guidance for employers in structuring their master service agreements and other contracts.